What is open banking?
The concept of open banking involves enabling third-party software providers and banks to build new, customer-centric financial applications and services.
Open banking is about giving customers control of their financial data and allowing other third-party organizations to access your data (with your permission) and stimulate innovation in the fintech industry.
Open banking can have a big impact on traditional business models. However, it enables more opportunities to work with fintech companies and focus on innovation and create new products benefiting everyone in the ecosystem.
Regulations
The term open banking refers to two different pieces of financial regulation:
- The Competition and Markets Authority’s (CMA’s) “Open Banking Remedy.”
- European Payment Services Directive 2 (PSD2).
The first one results from an investigation in retail banking by the CMA, a non-governmental British authority, which has found different holes within the system and has laid out a set of remedies to improve the industry. These include open banking standards.
The second one is a European directive that aims to regulate payment services and payment service providers within the EU. The main objective is to increase competition and participation in the payments industry and also from non-banks. READ MORE: Five tips to modernize your banking infrastructure.
Benefits of open banking
Open banking APIs are assets for all financial services firms, as they enable them to improve their existing customer engagement and appeal to new prospective customers by meeting their changing demands on accessing their financial information. It also builds new digital revenue channels focusing on banking APIs. READ MORE: Open banking adoption: Don’t panic, APIs are here.
API integration strategy… discover their role
Effective API technology is the heart of open banking. Financial services firms must be able to future-proof their technologies to meet the agility and speed with the market changes. READ MORE: The shift in B2B integration; it’s not how it’s the who.
With the right API integration strategy, it helps the financial services companies to complete the journey more quickly. Some critical benefits of the API integration offer are:
- Improved innovation
- Improved compliance
- Faster B2B communication
- Streamlined business processes
Open banking to develop new revenue streams
Until now, fintech had an advantage because of the luxury of focusing on customer experience without the heavy lifting of the legacy IT infrastructure. With the evolution of open banking APIs, this strategy is now possible for all the traditional banks, and can also monetize the customization of the fintech startups.
- The ecosystem of fintech — Startups enables more opportunities to work with fintech companies and focus on innovation and also build an internal innovation lab to try out new ideas focusing on customer needs.
- Bank-as-a-Service is the complete end-to-end process, ensuring the digital delivery of banking services via APIs. Banks can reposition them into more like a platform for anyone in the fintech space to build on top of the bank’s platform.
- Banks. Traditional banks have the advantage of holding licenses and regulated banking back-ends.
With the proper API integration strategy, banks can transform themselves as platforms that offer banking-as-a-service. Banks, by positioning themselves as a platform, can expose existing and new functionalities to partner with fintech firms to enhance their services offering and monetize APIs.
Learn how opportunities abound in open banking.